# MBA 570 Summer 2011. How much long-range capacity is needed When more capacity is needed Where facilities should be located (location) How facilities.

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MBA 570 Summer 2011

How much long-range capacity is needed When more capacity is needed Where facilities should be located (location) How facilities should be arranged (layout) Facility planning answers:

Maximum output of a system in a given period (general definition) May be units, hours, dollars, sq. ft. etc. Example: Tons of steel per month Effective capacity: Maximum output given standards, product mix, etc. Rated capacity: Maximum usable output given utilization & efficiency RC = (Capacity)(Utilization)(Efficiency)

How would you define capacity for the following firms (e.g., steel mill, tons of steel per day): Beer brewery Auto plant Restaurant Warehouse Grocery store

Beer brewery: Barrels of beer per year (output) Auto plant: Cars per week (output) Restaurant: Customers per hour (output) or number of seats (input) Warehouse: Square feet of space (input) Grocery store: Square inches of shelf space (input)

Forecast Demand Compute Needed Capacity Compute Rated Capacity Evaluate Capacity Plans Implement Best Plan Qualitative Factors (e.g., Skills) Select Best Capacity Plan Develop Alternative Plans Quantitative Factors (e.g., Cost)

Add Facilities Add long lead time equipment Schedule Jobs Schedule Personnel Allocate Machinery Sub-Contract Add Equipment Add Shifts Add Personnel Build or Use Inventory Long Range Planning Intermediate Range Planning Short Range Planning Modify CapacityUse Capacity * * *Limited options exist

Capacity: The throughput, or number of units a facility can hold, receive, store, or produce in a period of time. Utilization: Actual output as a percent of design capacity. Effective capacity: Capacity a firm can expect to receive given its product mix, methods of scheduling, maintenance, and standards of quality. Efficiency: Actual output as a percent of effective capacity.

Actual (or Expected) Output = (Effective Capacity)(Efficiency)

Measure of planned or actual capacity usage of a facility, work center, or machine

Measure of how well a facility or machine is performing when used

Forecast demand accurately Understanding the technology and capacity increments Finding the optimal operating level (volume) Build for change

1. Making staffing changes (increasing or decreasing the number of employees) 2. Adjusting equipment and processes – which might include purchasing additional machinery or selling or leasing out existing equipment 3. Improving methods to increase throughput; and/or 4. Redesigning the product to facilitate more throughput

Approaches to Capacity Expansion Expected Demand Time in Years Demand New Capacity Capacity leads demand with an incremental expansion Capacity leads demand with a one-step expansion Capacity lags demand with an incremental expansion Attempts to have an average capacity, with an incremental expansion

Approaches to Capacity Expansion Expected Demand Time in Years Demand New Capacity Capacity leads demand with an incremental expansion

Approaches to Capacity Expansion Expected Demand Time in Years Demand New Capacity Capacity leads demand with a one-step expansion

Approaches to Capacity Expansion Expected Demand Time in Years Demand New Capacity Capacity lags demand with an incremental expansion

Approaches to Capacity Expansion Expected Demand Time in Years Demand New Capacity Attempts to have an average capacity, with an incremental expansion

Vary prices Vary promotion Change lead times (e.g., backorders) Offer complementary products Managing Existing Capacity Demand Management

Time (Months) Sales (Units) Snow- mobiles 0 1,000 2,000 3,000 4,000 5,000 JMMJSNJMMJSNJ

Time (Months) Sales (Units) Jet Skis Snow- mobiles 0 1,000 2,000 3,000 4,000 5,000 JMMJSNJMMJSNJ

Time (Months) Sales (Units) Jet Skis Snow- mobiles Total 0 1,000 2,000 3,000 4,000 5,000 JMMJSNJMMJSNJ

Time (Months) Sales (Units) Jet Skis Snow- mobiles Variation is reduced by combining demands Total

Vary staffing Change equipment & processes Change methods Redesign the product for faster processing Managing Existing Capacity Capacity Management n Vary prices n Vary promotion n Change lead times (e.g., backorders) n Offer complementary products Demand Management

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